Hospitals, gun makers look forward to four more years under Obama

Rob Varnon

Published 8:56 pm, Wednesday, November 7, 2012

In the wake of President Obama's re-election, equities experts see an economy more friendly to health-care companies and gun makers than defense contractors like Sikorsky parent United Technologies Corp. or luxury retailer Ethan Allen Interiors Inc.

A precipitous drop in the market didn't help matters Wednesday the day after American voters left the U.S. political landscape largely unchanged, sending Obama back to the White House, leaving the Senate's leadership to the Democrats and keeping the Republicans in charge of the U.S. House. The S&P 500 finished down 2.34 percent to 1,395.

But investment advisors in the area said the market's drop was driven by a mixture of forces, including concerns over Europe's economy, fears that Congress will remain gridlocked and some profit taking after what has so far been a good year. Looking down the road at another four years under Obama, economists and investment advisors see a mix of trouble and opportunity in a struggling economy and a congressional environment where partisanship has paralyzed advancement. For Connecticut, these expectations and trends could impact a number of major employers in the region.

Although in Connecticut, the major hospitals are nonprofits like Yale-New Haven, Obama's re-election means that health-care providers can get on with the business of planning for the 2014 enactment of the overhaul of the health-care system, which may result in hiring and increased revenue. Obama's Republican challenger, Mitt Romney, had vowed to repeal Obamacare if elected.

Consumer staples also are poised for growth as this economy focuses on household spending on basics, Schatz said.

In Connecticut, Sun Products in Wilton is a private company that makes laundry detergent and other consumer staples, while European-based Unilever NV, traded on both the New York and London stock exchanges, has a large research and development center in Trumbull.

Connecticut is also home to a number of companies with high exposure to defense spending, including United Technologies, with its Sikorsky helicopter division in Stratford and Pratt & Whitney jet engine unit in East Hartford.

Hexcel Corp., a composite materials maker provides high performance engineered products to many defense contractors and smaller, private companies like Lex Products in Shelton also have concerns about projections that would trim $500 billion in Pentagon spending over the next 10 years.

"Defense is not good," Schatz said, but not because of Obama specifically. "So far, Obama hasn't been for cutting defense. But ultimately, we are going to cut defense."

Fairfield-based General Electric Co., which also has some defense exposure, could be a safety play for many investors, Schatz said, as the largest corporations have solid balance sheets in a rough economy.

Another concern of Schatz's is if Congress and Obama fail to extend the Bush-era tax cuts and the government falls off the so-called $600 billion fiscal cliff, consumer spending would slow down, which might hamper sales at high-end retailers including Danbury-based Ethan Allen Interiors.

Many analysts are expecting a rough patch ahead, financially.

"Obviously, this January, whoever gets elected, when they realize the magnitude of the problems, are going to become very sober, very quickly, because the problems are still enormous," Peter Gioia, vice president and economist for the Connecticut Business and Industry Association, said before the election results.

Gioia predicted four years ago that the recession, coupled with the housing crash, would doom any president to one term. Today, even if the problems are not as big, they are still massive, he said, with little help available from the Federal Reserve.

"Here we are having enormous problems in a low interest-rate environment. ... Just imagine what happens if we get a small uptick" in rates, he said.

Today, the effective discount rate, or the rate that the Fed charges banks to borrow, is zero and the prime rate, charged by banks to its best customers, has been locked at 3.25 percent since 2009.

Under past administrations, the discount rate could be counted on to help spark economic activity or keep inflation under control, but that's not the case today. The Federal Reserve's annual discount rate during the presidency of Ronald Reagan, between 1981 and 1988, slid to 6.23 percent from as high as 13.42 percent, while the prime rate was cut in half to 9.32 percent. During former President Bill Clinton's term, from 1993 to 2000, the discount rate rose to 5.75 percent from 3 percent and the prime rate ran to 9.23 percent from 6 percent.

Gioia said what's needed from the president after the election is to reintroduce confidence and certainty into the economy. He said he's heard from business owners and consultants, many of whom are sitting on their hands with two different budget scenarios for 2013: One in which the taxes go up and the economy falters, and another in which it doesn't.

Companies that continue to hold off on making businesses investments could hurt sales at office equipment and services providers like Stamford-based Pitney Bowes Inc and Xerox Corp. of Norwalk.

Joe Matthews, first vice president and Fairfield branch manager for Morgan Stanley, agreed the federal government's balance sheet is a big problem going forward, and said that because the status quo was kept in place in Washington, we'll continue to some level of gridlock.

Some expect that means there will be no deal to slow tax increases or stop spending cuts before the year is out.

That aside, Matthews said he likes hospitals and medical device makers, which will benefit from another four years under an Obama adminstration.

Matthews would not talk about specific companies or stocks, but there are medical device makers in the region, including Cooper Surgical, based in Trumbull. That company is owned by California-based Cooper Companies, which is traded on the New York Stock Exchange. Shares in Cooper slipped 1.34 percent to $96.49 in Wednesday trading.

If there has been one industry that's continued to enjoy huge sales under Obama, it's the gun industry, which the market rewarded in the wake of Obama's win. Gun makers have performed well under the Obama administration amid speculation that the president, a supporter of gun control, would make it harder to obtain one.

Another possible winner in this election could be homebuilders, Matthews said. They could see a lift under Obama's second term as more housing support programs are rolled out and companies that provide construction equipment could also benefit if plans to improve the nation's infrastructure get moving, he said.

That could aid a company like Westport-based Terex Corp., which makes excavation and other construction machinery.